In recent weeks, PayPal has cut off many of the world's largest filehosting sites from its service including MediaFire, Putlocker and DepositFiles. Growing concern over copyright infringement has resulted in an extremely strict and in some cases privacy-violating set of requirements being laid down by the payment processing company. Cyberlocker owners are disappointed with the apparent witch-hunt which in some cases is paralyzing their business.

More than half a year after Megaupload was shuttered by the U.S. Government and the file-hosting industry is still in peril.

Hollywood has painted a target on sites such as MediaFire, Putlocker and DepositFiles, but these legal threats are not their only worry. In recent months, PayPal has stopped working with these and dozens of other file-hosting services, citing piracy concerns.

To be accepted by PayPal, file-hosting services now have to comply with a list of far-reaching demands entirely targeted at copyright-infringing and otherwise illegal files.

Just how far PayPal is prepared to go is explained by Putlocker. The UK-based company had its PayPal account frozen three months ago after it refused to allow the payment provider to snoop on files uploaded by its users.

“They basically wanted access to the backend to monitor all the files being uploaded, and listing all files of users if they wanted, regardless of the privacy setting that the user might have selected,” Putlocker told TorrentFreak.

“This is a complete invasion of privacy on PayPal’s part, as it’s none of their business what files users keep in their account. We have a solid abuse handling policy already, and we don’t feel a 3rd party company has any business snooping on our users,” the company added.

PayPal’s terms

The owner of another major file-hosting service, who prefers to remain unnamed, says that he tried to do everything to keep PayPal on board. The site in question says it complied with all publicly listed terms, but that didn’t help.

“We have talked to more than five PayPal agents, however, all they are saying is that we do not comply with their policies, and that we should stop processing payments using PayPal,” the owner told TorrentFreak.

“This has a paralyzing effect on the file-hosting industry where 90% of the users of some sites pay using PayPal,” he added.

Previously most file-hosting sites relied heavily on PayPal, but they will now have to switch to alternatives. The next question is whether PayPal’s example will be followed by others such as Visa and Mastercard.

If it’s up to the one man army of adult industry businessman Robert King, all payment providers will follow. King is actively approaching these companies and says he wont stop before all major file-hosters are disconnected.

While King’s efforts probably have some effect, he can’t take credit for disconnecting PayPal from Putlocker three months ago. United States-based MediaFire also told TorrentFreak that King had little to do with their PayPal issues.

MediaFire says it stopped accepting PayPal after the company was unable to reach an agreement with the payment provider.

“PayPal started a discussion with us in February regarding continued use of its service. Ultimately, we were not able to agree on how to move forward and, as such, stopped accepting new customers through PayPal in early June,” Mediafire co-founder Tom Langridge told TorrentFreak.

MediaFire sees PayPal’s recent actions as a direct consequence of the Megaupload shutdown.

“I think it’s fair to say that because of PayPal’s business model, it got burned by the sudden shutdown of Megaupload,” Langridge says. However, unlike some other file-hosters, MediaFire was fortunate enough to be able to prepare for the switch.

“We have been planning for this change for some time so the impact to new and future customers is negligible. We have seen no impact to continued sales since we stopped accepting PayPal,” Langridge told us.

While not all file-hosters are equally impacted, it is clear that the troubled industry has a long way to go before things calm down.